The Mexican bank trust is an instrument commonly used for non-Mexican nationals, such as U.S. citizens and Canadians, to purchase coastal land in Mexico. This bank trust in Mexico is known as a fideicomiso. When talking about Baja real estate in English, most people use the term "bank trust" simply because it is easier to pronounce than fideicomiso, but when talking in Spanish, you should expect to hear and use the term "fideicomiso."
First, from a non-Mexican national’s viewpoint, a bank trust is used to acquire property here in Mexico only on land that is within the restricted zone, arguably the most desirable amongst buyers. This Restricted Zone, sometimes also called the Prohibitive Zone, is coastal land between 60 feet from the mean high-tide line, up to 31 miles inland from the ocean, and up to 62 miles from international borders.
This land is restricted, because Mexico’s constitution reserved it for Mexico. In 1973, Mexico changed its foreign investment laws to encourage foreign investment in both real estate and corporations using fideicomisos to acquire land, and in 1998, the length of the term was extended from 30 to 50 years.
In the Restricted Zone, Mexican nationals have the option of using either a fideicomiso or an escritura publica to acquire real estate. An escritura publica is a type of deed used by Mexican nationals to acquire land. Non-Mexican nationals are restricted from acquiring title to land using an escritura publica. However, non-Mexican nationals are allowed to acquire Mexican coastal real estate using a fideicomiso.
This Restricted Zone is one of the four major types of land that non-Mexican nationals will encounter when making a real estate purchase in Mexico. The other three types of land are the Federal Zone, the Unrestricted Zone, and Ejido Land. It would be smart to learn about all of them, since here in Baja California, all four types of land are present and common.
There are three parties that all play a part in the creation of a Mexican bank trust, or fideicomiso: the buyer/beneficiary, the seller, and the Mexican bank.
The buyer of the Mexican real estate is the beneficiary of the fideicomiso. The buyer can be a person, a husband and wife or family, any group of people, or a stateside limited liability company, or LLC This buyer/beneficiary will receive all the rights that go with the property.
The seller is the grantor. They sell the real estate involved, and relinquish all the rights that go along with the property.
A Mexican bank serves as the trustee, and has a fiduciary relationship with the buyer, meaning that the Mexican bank is working in good faith for the buyer/beneficiary and in their best interests. The bank holds naked title to the property and carries out duties related to the property that serve the desires of the beneficiary, the buyer.
Now at this point you might be thinking why would a buyer need the Mexican Bank and what is naked title? Having the deed deposited with the bank is all that is needed to satisfy the Mexican constitution in allowing a non-Mexican to hold title to property in the Restricted Zone. Without the bank trust this would be impossible. It is that simple.
The Mexican bank with naked title simply means that the property deed is deposited with them, but they don’t count it as an asset on their books. The bank can’t sell, depreciate, or receive any benefits from the property because they don’t have control of the property; they only have naked title, meaning title without benefits. If the bank servicing the bank trust goes bankrupt, then the fideicomiso is transferred to another Mexican bank to continue servicing the trust on behalf of the beneficiary.
The buyer/beneficiary has control of the property, and will count the property as an asset on their books for their accounting purposes. They have the right to occupy it, enjoy it, lease it, improve it, depreciate it, 1031 exchange it, finance it with their IRA, borrow money against it, bequeath/will it, add beneficiaries to the trust to avoid Mexican probate, lease-option it, sell it, and anything that can be done with Mexican real estate. Also, since the legal life of the trust is 50 years, the buyer/beneficiary can renew the trust as well.
Fideicomisos cost about $1600 to set up, and about $600 a year to maintain. It is good to shop a couple of banks to find out of all the costs of a fideicomiso, because Mexican banks are in competition with each other for your business.
A Mexican would probably choose to take title to their land and home using an escritura publica for two reasons. First, it is more traditional, and second, they don't have to pay the fees associated with the fideicomiso, even though there are fees to have an escritura publica drawn and recorded. However, once a fideicomiso is set up, it is transferable and does not have to be recreated when the property is sold. This makes the fideicomiso an asset. By having a fideicomiso, you have more of a market to sell to, both Mexican and international buyers, therefore making your investment more liquid.
by Mario Restrepo